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The Macau Metro Monitor, April 26th, 2010


Sands China Ltd. will seek shareholder approval for an Equity Buyback at its Annual General Meeting to be held on June 19, 2010. Under the program, the company will repurchase 10% of its issued share capital.


LAND AUCTION CLOSE macaubusiness.com

Secretary for Transport and Public Works Lau Si announced that there will be an open land auction, 30,000 square foot parcel, and industrial building revitalisation measures to increase the supply of small to medium sized residential units. The winning bidder will be allowed to construct more than 500 small to medium sized residential units, which are little bigger than the economic housing standards. The government is also wants to promote rebuilding old, single-ownership industrial buildings for residential use.



CEO Chui says the government will “unswervingly” uphold the employment rights of Macau workers and come down “heavily” on illegal workers and their employers under the newly created Law on Employment of Non-Resident Workers. Officials will continue to make laws and regulations to further regulate the ratio between local and imported workers, and the withdrawal of imported labor and set up supervisory groups, Chui said.





The Forgotten Truth

“It is a simple but sometimes forgotten truth that the greatest enemy to present joy and high hopes is the cultivation of retrospective bitterness.”

-Robert Menzies


Retrospective bitterness might be the last way to describe how Australians have regarded their former leader. Born in 1894, Sir Robert Menzies founded the Liberal Party of Australia and, after winning his second election in 1949, he went on to become the longest serving Prime Minister in Australian history.


In 1942, Menzies delivered one of the most important speeches of his career. It was called “The Forgotten People.” Current Australian Prime Minister, Kevin Rudd, often referenced this generation of Australians ahead of the 2007 federal election. Here’s an excerpt from that historical Menzies speech:


“I do not believe that the real life of this nation is to be found either in great luxury hotels and the petty gossip of so-called fashionable suburbs, or in the officialdom of the organized masses. It is to be found in the homes of people who are nameless and unadvertised, and who, whatever their individual religious conviction or dogma, see in their children their greatest contribution to the immortality of their race.”


Nameless and unadvertised, officialdom in America today is not. If we didn’t reach the record heights of political hubris in 2007, we are going to blow up this Bubble in US Politics as big as we can here in 2010. Unfortunately, Crocodile Dundee himself may not have a knife large enough to pop it, until it’s too late.


Today, we are going to grope around for answers as to whether or not this stock market rally is sustainable and whether failed politicians continue to perpetuate our long term issues. Our problems don’t start with asking ourselves whether American capitalism is dead, but where our principles went in trying to define it.


Australian central bank Chief, Glenn Stevens, isn’t going to win a popularity contest at the G-whatever meetings. Nor does he care. He is a realist  and a risk manager who reminds the people of Australia that “present joy and high hopes” for their country shouldn’t be solely measured by the ticks of their stock market. To have sustainable prosperity, everything starts with  The Forgotten Truth that inflation crushes the forgotten people.


Between new  home sales exploding to the upside for the month of March (+23.8% year-over year growth) and US Producer Prices (PPI) for March coming in at new sequential high of +6% year-over-year, last week’s growth and inflation data in the US was a lot higher than the “double-dip” crowd has been forecasting. When money is free, it’s amazing how much higher demand for things you can buy with those moneys can go.


Although this was March data, the real-time price data for April continues to inflate as well. Never mind that the SP500 has inflated +80% from its March 9th, 2009 low. This stock market is still -22.2% cheaper than the most levered up price (based on the most levered up domestic consumption and housing numbers), in US history. What a deflation deal!


There isn’t an inflation chart in my entire global macro playbook that hasn’t V-bottomed at this point, so I guess if you are going to be bullish and dovish all at the same time up here, you better be taking the government’s word for it because the forgotten people of America don’t buy it. Despite the SP500 being up a monstrous +15.1% since February the 8th, last week’s ABC/Washington Post consumer confidence reading registered a new low at minus 50. Oh damn that Forgotten Truth.


For those of you who believe that some levels of inflation are marked-to-market in the commodities that you either pump into your cars or children’s mouths, you saw the leading indicator for anything that needs to be moved around in this world shoot up another +3.2% week-over-week to close Friday’s trading to $85.12/barrel. At the same time, Gold is starting to bust an inflationary move to the upside again, adding another +1.5% week-over-week as well.


All the while, US Treasury bond yields continued higher last week with the short end of the curve moving up to 1.07% on 2-year yields. As much as Ben Bernanke wants you to believe that he’ll never raise interest rates, Mr. Macro Market is seemingly trying his best to move rates higher on his own.


There is only 1 week left in April and we are on the record with a call for April Flowers bringing May Showers to the US stock market. While that might irritate the odd perma-bull who still truly believes in buy and hope (that the Fed never stops purging its citizenry’s savings for the sake of the selected ones), I’m ok with that. My topside intermediate term overbought target for the SP500 is 1214, so I will be shorting the SP500 (if it’s up) sometime in the coming days.


That doesn’t mean I don’t love America. It just means I love my family, my firm, and the capital I have preserved for them. I am proud to be part of “The Forgotten People” who never had to fire anyone, point fingers, or ask for a bailout. We were the bears turned bulls of 2008-2009 who won’t chase the SP500 up here. We are now more comfortable being long Germany, Oil, and Aussi dollars.


The last time the bearish side of the US Institutional Investor sentiment survey was this low (17%) was 1987. I guess that means The Forgotten Truth is only another one of those days that “no one could see coming” away - except from New Haven and Australia.


My immediate term support and resistance lines for the SP500 are now 1205 and 1220, respectively.


Best of luck out there today,



The Forgotten Truth - new home sales



The action in small-cap stocks (Russell 2000) is conveying a much more positive message that of the S&P 500.  The trends in the S&P 500 since last week’s low are not convincing and may be part of a larger consolidation phase. 


Last Friday, the S&P 500 shook off some late-morning sluggishness to finish higher on a 6% decline in volume.  The S&P 500 has closed higher eight of the last nine weeks.  The March quarter earnings season takeaways remained largely positive, with some support coming from the MACRO calendar.  The only real headwind came from Greece, but the sovereign contagion saga remained fairly limited for now.


New home sales exploded in March, beginning what we think will be a major buying push that will run through the next few months as the lagged data around the homebuyer tax credit comes trickling through. Remember, we're now just one week away from the expiration of the tax credit. The March data released this morning came in at 411k, up 26.9% (seasonally adjusted annualized rate) vs. consensus for 330k and last month's print of 308k (the lowest level in 12 months). In addition, months’ supply fell to 6.7 from 8.6 in February, the lowest level since late-2006.


Also on the MACRO front, ex-transportation durable goods orders rose 2.8% in March vs. consensus expectations for a 0.7% gain, while core capital goods orders jumped 4%, with continued strength in machinery. The shipments data was another bright spot as core capital goods shipments rose 2.2%.


Not surprisingly, the housing-leveraged names outperformed again yesterday.

The S&P 500 Homebuilding index was up 4.4% and 17.6% over the past week.


The only trades of note on Friday were:


COVERING CMG - Apparently the stock was overbought yesterday. Penney and I are simple men trying to earn simple and transparent spreads - covering red. KM


BUYING FXA - Buying into the risk management process that Glenn Stevens and the Reserve Bank of Australia continue to uphold. We are buying FXA on the down move today. KM


BUYING DJP - Both the DJP and CRB Commodities Indexes are starting to breakout above their respective intermediate term TREND lines. Our Q2 Theme of Inflation's V-Bottom syncs with what Mr. Macro Market is doing. KM


While the Dollar index closed down 0.26% on Friday, it closed up 0.65% on the week - the first up week in the last three.  The Hedgeye Risk Management models have levels for the Dollar Index (DXY) at:  buy TRADE (80.02) and sell TRADE (81.80). 


We have no position in the VIX currently and it remains broken on all three Hedgeye durations.  The Hedgeye Risk Management models have levels for the VIX at: buy TRADE (14.86) and sell TRADE (16.81). 


On Friday, the Energy sector put in a strong performance today, rising 2.4% on the day.  The energy commodities were among the standouts in the CRB, with June crude up 1.7% to $85.12 a barrel.  The Coal and Oil services group were a big gainer yesterday, with S&P coal index up 4.6% and the OSX up 3.2%. Oil traded near $85 a barrel as the euro dropped for the seventh time in eight days on concern the European Union-led Greek bailout plan will be held up.   The Hedgeye Risk Management models have levels for the OIL at: buy TRADE (83.81) and sell TRADE (87.23). 


After underperforming throughout much of last week, the Healthcare sector (XLV) finished up 1% higher on the day. The strength was fueled by MRK +5%, which noted that healthcare reform will not impact its forecast for high single-digit earnings growth through 2013. Earlier in the week, one of the biggest drivers of the recent weakness in healthcare has been concerns about the larger-than-expected impact of healthcare reform.


Gold is declining from a one-week high in London as the dollar’s advance against the euro may curb demand.  The Hedgeye Risk Management models have the following levels for GOLD – Buy TRADE (1,147) and Sell TRADE (1,164).


In early trading, Copper rose to a one-week high in London as investor sentiment improved after Greece moved toward securing a financial rescue package.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy TRADE (3.52) and Sell TRADE (3.63).


In early trading, equity futures are trading above fair value as the market absorbs a resolution to Greece's funding crisis and refocus on fundamentals which continue to support the recovery story. Today's economic calendar is light, while earnings continue to be a focus.  As we look at today’s set up, the range for the S&P 500 is 15 points or 1.0% (1,205) downside and 0.2% (1,220) upside. 


Howard Penney

Managing Director














Penn raised guidance in conjunction with its earnings release last week.  We think it’s still too low.



This won’t be a long post.  We just want to make it clear that we think PENN’s 2010 guidance is too conservative.  We thought so when it was lowered to a dollar in the Q4 earnings release, and we still think so.  After a much better quarter, driven by impressive cost controls, management raised full year EPS and EBITDA guidance to $1.14 and $578 million, respectively. 


We are now at $1.23 and $590 million, respectively, and we’re not actually positive on the outlook for regional gaming revenues.  We don’t see a v-shaped recovery.  Gas prices (a statistically significant variable) are higher than last year and gaming spend has been declining as a percentage of discretionary spending since housing cracked in late 2007. However, PENN management appears to be even more conservative than us and that is a good thing for long investors.


Can PENN work in our pessimistic environment? We certainly are not as positive as we were on the regionals in March.  However, we remain bullish on PENN since the numbers are beatable and new market growth will be high ROI for the company.

McCullough Discusses Goldman, Financial Regulation


Slot guys can do little wrong in the eyes of investors.  It probably makes sense.  Who cares about this quarter?



BYI is up 7% since April 5th which is pretty good. Considering that the company punted pretty badly on April 6th, that is a pretty remarkable performance. This just goes to show you how much the institutions want to own this sector and for good reason. IGT reported a low quality quarter and, as we suspected, the stock rocketed higher. In sympathy, BYI appreciated over 5% on the day.


So what should we expect on Thursday night?  We actually feel better about their quarter post the IGT call. Generally there shouldn’t be a lot of surprises since they already pre-announced… but of course the magic is where the shortfall comes from. Market share probably dipped – Konami may have shipped 2,500 units this quarter – and probably will stay low for another couple of quarters. We are getting positive feedback from BYI’s new games but it will take a bit of time before they show up materially in the numbers.


We’re at $0.53 for the quarter, including Rainbow, since it’s technically not discontinued until next quarter, and in-line with consensus at $0.58 for the June quarter. However, we are above consensus for FY2011. Below are the details: 

  • Product sales of $72.5MM with a gross margin of 50%
    • 3K machines shipped to NA, comprising of 2,600 replacement units and 400 new units
    • 1,500 international shipments
    • $14.5K ASP’s
    • $7.4MM of “other product sales”
  • Systems sales of $52.5MM at a 74% margin
    • We know that the Marina Bay Sands revenues won’t be booked until the June quarter
    • We suspect margins should be higher than usual since revenues should be heavily weighted towards software vs. new system installs
  • Gaming operations revenue of $66MM with margins at 72%
    • Normally March is a seasonally better quarter than December, however, we know this quarter and the next several will be impacted by the removal of the Alabama units
    • We estimate a $3MM revenue impact from Alabama this quarter and a $4.8MM impact for the June quarter
  • Other stuff:
    • SG&A of $52.5MM
    • R&D of $20MM
    • Net interest expense of $2.5MM, which will step down next quarter and going forward since interest on the R/C steps down 50 bps and BYI will have $80MM more of cash on hand, barring a stock buyback
    • D&A of $5.9MM
    • Tax rate of 35%

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.51%
  • SHORT SIGNALS 78.32%